Posts Tagged ‘Pareto’

We received a postcard from our plumber offering service on Fridays with no service charge, explaining that they can offer this because the plumber will be in our area of town, thus saving drive time and fuel costs. We are better off, saving the $59 on the service charge; and the plumbing company acknowledges that the savings make it better off too. It’s not often you see a company that understands Pareto improvements this well. I invite other examples of commercial offers where the advertiser makes the mutual gains as clear as this.

The Week (and, earlier, the N.Y. Post) reports a new way for high-wage people to economize on time: when visiting Disney World, hire a “tour concierge” — a disabled person who uses his/her disability privileges to ignore waiting lines (and take the high-wage person and family with him/her ahead of the crowd). At $130 per hour, the time saving is easily justified economically (just think of the lines at Space Mountain, or at my personal favorite, Small World). It would be nice too if people would rent me their toddlers to board Southwest Airlines flights ahead of the mob. Clearly, there is room for beneficial exchange like this in many areas.

These are not, however, Pareto improvements: while the “concierge” and his/her customers gain, everybody else in line loses. It doesn't seem fair to me, and perhaps not efficient, since the externalities of extra waiting time for the whole line can be substantial.

I write all my papers, letters, and exams using the typeface Times New Roman. As a lunch-table discussion here in England revealed, the University insists on certain typefaces that are dyslexia-friendly, particularly Arial, Trebuchet, and Verdana. It costs me or any other faculty member nothing to use one of these on exams; non-dyslexic students are not harmed by them, and dyslexic students are better off. Henceforth, no more Times New Roman on tests — mine will all be in Arial. A clear Pareto improvement. (HT: MS)

With the U.S. presidential election nearly here, everyone seems to have politics on their mind. Unlike most people, economists tend to have an indifference towards voting. The way economists see it, the chances of an individual’s vote influencing an election outcome is vanishingly small, so unless it is fun to vote, it doesn’t make much sense to do so. On top of that, there are a number of theoretical results, most famously Arrow’s Impossibility Theorem, which highlight how difficult it is to design political systems/voting mechanisms that reliably aggregate the preferences of the electorate.

Mostly, these theoretical explorations into the virtues and vices of democracy leave me yawning.

Last spring, however, my colleague Glen Weyl mentioned an idea along these lines that was so simple and elegant that I was amazed no one had ever thought of it before. In Glen’s voting mechanism, every voter can vote as many times as he or she likes. The catch, however, is that you have to pay each time you vote, and the amount you have to pay is a function of the square of the number of votes you cast.

In line at the Star$$ on campus, I got to chatting with Professor C just in front of me. She ordered a latte and bought the last of the delicious Star$$ cake donuts, which I had had my eye on. When I got to the order desk, I asked the barista (actually a male, so I guess a barister!) if he had any more in back. Professor C offered to split the donut with me, and I said OK, but I insisted on giving her $1, my share of its cost. She then said she prefers one-half donut to a whole donut anyway, and so do I. She gave the barister a $1 tip. Everyone was better off—a clear Pareto improvement compared to the situation where she got the donut, and the barister and I got nothing.

A tenured senior professor at another university, one of his department’s top researchers and best teachers, asked his department chairman for a temporary one-course teaching reduction for this Fall. The chairman refused but offered a terminal three-year appointment that included this reduction for all three years, at the same salary as if this professor taught a full load each year.

The professor accepted the deal, as he desperately wanted the teaching reduction this Fall, figuring he could get a teaching job elsewhere after three years. But he tells me he would have been happier teaching a full load over the next two years, and would rather not have to search for a job in two years. He is worse off. The department and university are also worse off, since they lose his courses in each of the next two years, and thereafter will not get the benefit of his teaching and his research/publication luster; and students are worse off too.

Is this really a Pareto deterioration—a new economic phrase denoting a change in which at least one person is worse off, and nobody better off? And is the phrase Pareto deterioration the best name for this unusual phenomenon?

Fifteen years ago, on a visit to Peru, I drank many pisco sours and decided I had to buy a duty-free bottle of pisco. It has sat unopened in our liquor cabinet since then. A colleague mentioned he had bought a number of bottles of a South African liqueur, Amarula Cream, that tastes a lot like Baileys Irish Cream, which we love. Chatting, we suggested a trade, since he’s a pisco sour fancier, as is his wife.

The trade is now consummated, and both we and our wives are happier for it. No monetary transaction, but I am convinced that everybody is better off—this is a real Pareto improvement.